Measuring Double Materiality: Focus on Water Impact

ESG
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September 2, 2024

Double materiality is a concept primarily used in corporate sustainability reporting and decision-making. It considers both:

  1. The impact of environmental, social, and governance (ESG) factors on a company's financial performance and value.
  2. The impact of a company's activities on the environment, society, and economy.

Here's an example to illustrate double materiality:

Let's consider a hypothetical beverage company called "FreshDrink Co."

  1. Financial materiality (impact on the company):Climate change is causing water scarcity in regions where FreshDrink Co. sources its water. This scarcity could lead to increased water costs and potential supply disruptions, directly affecting the company's financial performance and long-term viability.
  2. Environmental and social materiality (impact of the company):FreshDrink Co.'s water usage in water-stressed areas may be depleting local water resources, affecting the surrounding ecosystems and communities' access to clean water.

In this example, double materiality requires FreshDrink Co. to consider and report on:

  • How water scarcity risks affect its financial performance and strategy
  • How its water consumption impacts local communities and environments

By addressing both aspects, the company can make more comprehensive decisions that consider both its financial sustainability and its broader impact on the world.

Detailed Focus: Measuring Water Impact

While water usage is measured in volumes (liters or gallons), the actual impact is assessed through various methods:

  1. Water Stress Index:
    • Compares water withdrawal to water availability in a given area.
    • Tools like the WRI Aqueduct Water Risk Atlas provide water stress scores for different regions.
    • Impact is higher in water-stressed areas.
  2. Water Footprint Assessment:
    • Measures direct and indirect water use throughout the value chain.
    • Categorizes water use into blue (surface/groundwater), green (rainwater), and grey (polluted) water.
    • Helps identify hotspots of water consumption and pollution.
  3. Life Cycle Assessment (LCA):
    • Evaluates water-related impacts throughout a product's life cycle.
    • Considers factors like eutrophication, acidification, and aquatic ecotoxicity.
  4. Local Impact Assessment:
    • Evaluates effects on local water bodies, ecosystems, and communities.
    • May include biodiversity assessments, community surveys, and ecosystem service valuations.
  5. Water Quality Metrics:
    • Measures pollutants in wastewater (e.g., BOD, COD, pH, temperature).
    • Assesses impact on receiving water bodies.
  6. Water Efficiency Ratios:
    • Calculates water use per unit of production or revenue.
    • Helps track improvements in water use efficiency over time.
  7. Context-Based Water Targets:
    • Sets water use goals based on the local context and science-based thresholds.
    • Aligns corporate water use with sustainable water use for the watershed.
  8. Economic Valuation:
    • Assigns monetary values to water-related impacts and dependencies.
    • Helps translate environmental impacts into financial terms for decision-making.

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